United States v. David R. Knapp, United States of America v. Grk Corporation, Dba Knapp Ford Mercury

120 F.3d 928

97-2 USTC P 50,556, 97 Cal. Daily Op. Serv. 5600,
97 D.A.R. 9047

UNITED STATES of America, Plaintiff-Appellee,
v.
David R. KNAPP, Defendant-Appellant.
UNITED STATES of America, Plaintiff-Appellee,
v.
GRK CORPORATION, dba Knapp Ford Mercury, Defendant-Appellant.

Nos. 94-10022, 94-10023.

United States Court of Appeals,
Ninth Circuit.

Opinion Filed May 9, 1997.
Opinion Withdrawn July 15, 1997.
Decided July 15, 1997.

W. Scott Quinlan, Fresno, CA, and Roger T. Nuttall and Mark W. Coleman, Nuttall Berman Attorneys, Fresno, CA, for defendant-appellant David R. Knapp. Ronald H. Abernethy, Harris, Perisho & Woodwon, Stockton, CA, for defendant-appellant GRK Corporation.

Kenneth J. Melikian and Carl M. Faller, Jr., Assistant U.S. Attorneys, Fresno, CA, for United States.

On Remand from the United States Supreme Court. D.C. No. CR-93-05019-OWW.

Before: ALARCON and HALL, Circuit Judges, and KING,* District Judge.

ORDER

The opinion filed May 9, 1997 is withdrawn.

OPINION

KING, District Judge:

Appellants David R. Knapp and GRK Corporation d/b/a Knapp Ford/Mercury (collectively "Knapp") appealed jointly from a conviction and sentence for (1) conspiracy to money launder, 18 U.S.C. § 371; (2) money laundering, 18 U.S.C. § 1956(a)(1)(B)(i); and (3) filing false currency transaction reports, 26 U.S.C. §§ 6050I(f)(1)(B) and 7206(1) & (2). We affirmed in an unpublished disposition. United States v. Knapp, 52 F.3d 335 (9th Cir.1995). Knapp petitioned the United States Supreme Court for a writ of certiorari. The Supreme Court granted certiorari, vacated our decision, and remanded the case for our further consideration in light of United States v. Gaudin, 515 U.S. 506, 115 S. Ct. 2310, 132 L. Ed. 2d 444 (1995). Knapp v. United States, --- U.S. ----, 116 S. Ct. 666, 133 L. Ed. 2d 517 (1995). In light of Gaudin, we affirm the decision.

DISCUSSION

I. Jury Instructions

The standard of review of a district court's denial of a proposed jury instruction turns on the nature of the error alleged. United States v. Duran, 59 F.3d 938, 940-41 (9th Cir.), cert. denied, --- U.S. ----, 116 S. Ct. 535, 133 L. Ed. 2d 440 (1995). We review de novo whether the district court's instructions adequately presented the defendant's theory of the case. Id. If the district court's instructions fairly and adequately covered the elements of the offense, we review the instruction's "precise formulation" for an abuse of discretion. United States v. Woodley, 9 F.3d 774, 780 (9th Cir.1993) (citing United States v. Lunstedt, 997 F.2d 665 (9th Cir.1993)). Here, the issue is a question of law, whether the trial court presented the jury with every element of the crimes charged pursuant to United States v. Gaudin, 515 U.S. 506, 115 S. Ct. 2310, 132 L. Ed. 2d 444 (1995). Therefore, the proper standard of review for denial of a jury instruction is de novo rather than abuse of discretion. If a jury instruction misstates elements of a statutory crime, the standard of review is also de novo. United States v. Johnson, 956 F.2d 197, 199 (9th Cir.1992) (citation omitted).

II. United States v. Gaudin

In United States v. Gaudin, the trial court convicted respondent of violating 18 U.S.C. § 1001, making material false statements in a matter within the jurisdiction of a federal agency. 515 U.S. at 506-08, 115 S.Ct. at 2312. Contravening every other circuit, the Ninth Circuit held that the trial court erred in treating the "materiality" element of the charges as a question of law, rather than submitting it to the jury. Gaudin, 997 F.2d 1267, 1271 (9th Cir.), rehearing granted, 5 F.3d 374 (1993). On rehearing en banc, we emphasized that taking the question of materiality from the jury denied Gaudin his constitutional rights to due process and trial by jury. Gaudin, 28 F.3d 943, 949 (9th Cir.1994).

The Supreme Court agreed. 515 U.S. at ----, 115 S. Ct. at 2314. Gaudin stands for the general proposition that the Constitution gives criminal defendants a right to have a jury determine, beyond a reasonable doubt, the defendant's guilt of every element of the crime with which he or she is charged. Id. Justice Scalia reasoned:

1

The Constitution gives a criminal defendant the right to demand that a jury find him guilty of all the elements of the crime with which he is charged; one of the elements in the present case is materiality; respondent therefore had a right to have the jury decide materiality.

2

Id. We now apply this "Gaudin reasoning" to the charges in the present case.1

A. Conspiracy Instructions

3

In his petition for certiorari, Knapp contended that the conspiracy instruction erroneously failed to require the jury to find that he had knowledge of the unlawful object of the conspiracy. Although the Supreme Court's remand order to require us to review all claims in light of Gaudin, we find that Gaudin does not apply to this situation and that the claim lacks merit in any event. The trial judge instructed that Knapp had to have knowledge of the objective of the conspiracy--money laundering--and that he had to intend to help accomplish it. He also stated that the jury had to find there was a plan to commit a crime alleged in the indictment as an object of the conspiracy. Taken as a whole, the instruction adequately informed the jury as to the intent required to convict on a conspiracy charge and conformed to this circuit's precedents. Nothing in Gaudin, which addresses the different issue of whether the district court can decide as a matter of law an element of the crime, requiresus to reverse on this count. Accordingly, we affirm the conspiracy count.

B. Money-Laundering Instructions

4

Knapp argues that the general jury instruction defining "knowingly" improperly negated an element of money laundering from the jury's consideration, contrary to the holdings of Gaudin and United States v. Stein, 37 F.3d 1407, 1410 (9th Cir.1994). Knapp is wrong.

5

The Stein court reversed convictions for money laundering because a general instruction defining "knowingly" conflicted with the money-laundering instruction. The court distinguished between the two types of "knowledge" in money laundering: "[w]hile to sustain a conviction the defendant must have known that the primary predicate activity (in this case [Stein ] securities, mail and wire fraud) was unlawful, he need not have known that the secondary act of laundering the proceeds was unlawful." Stein, 37 F.3d at 1410 (citation omitted).

6

In Stein, the trial court instructed the jury "the government must prove ... the defendant knew that the property represented the proceeds of securities fraud, mail fraud, or wire fraud." Id. The court then gave a general instruction on knowledge: "[a]n act is done knowingly if the defendant is aware of the act and doesn't act through ignorance, mistake or accident. The Government is not required to prove that the defendant knew that his acts or omissions were unlawful." Id. This general instruction is Ninth Circuit Model Criminal Instruction No. 5.06 (which was given in Knapp's case). The Stein court held:

7

This general instruction conflicts with the district court's previous instruction on money laundering, because it purports to apply to all of the defendant's actions-his predicate acts of fraud as well as his secondary act of money laundering.

8

Where two instructions conflict, a reviewing court cannot presume that the jury followed the correct one. Here, by applying the later general instruction, a jury could convict Stein without finding that he knew his predicate acts of fraud were unlawful. Taken as a whole, the instructions omitted an element of the offense.... Such error cannot be harmless.

9

Id.

10

The instructions in Knapp's case were similar, but with two critical differences. Here, instruction No. 18 gave the elements of money laundering:

11

To establish the crime [of money laundering], the government must prove beyond a reasonable doubt the following four elements:

12

(1) The defendant knowingly conducted a financial transaction.

13

(2) The defendant must know that the transaction involved property which represented the proceeds of some form of unlawful activity.

14

(3) The transaction involved property which in fact was drug trafficking proceeds.

15

(4) The defendant engaged in the transaction with the intent to conceal or disguise the nature, location, source, ownership, or control of property which was drug trafficking proceeds. (emphasis added).

16

As in Stein, the money-laundering instruction was followed immediately by a general instruction defining "knowingly:"

17

An act is done knowingly if the defendant is aware of the act and does not act or fail to act through ignorance, mistake or accident. As to money laundering, the government is not required to prove that the defendant knew that his acts or omissions were unlawful. (emphasis added).

18

The emphasized phrase "as to money laundering" distinguishes the latter instruction from the one given in Stein. In Stein, the court reasoned that the "knowingly" instruction purported to apply to both the object of the conspiracy and to the money laundering act itself. The added phrase "as to money laundering" made sufficiently clear that the corresponding sentence applied only to the crime itself.

19

Moreover, the court gave the following additional instruction not given in Stein:

20

The term "knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity" means that the defendant knew that the property involved in the transaction represented proceeds from some form, though not necessarily which form of activity that constitutes a felony under federal or state law. Drug trafficking is a felony under federal or state law.

21

Combined, these differences distinguish Stein. These differences directly address the possibility that the jury could have omitted the second element of money laundering and convicted without finding Knapp knew the money represented illegal drug proceeds. Since we find that Stein does not apply, and therefore, that the element was not improperly taken away from the jury, we also find there was no Gaudin error with regard to the money laundering counts. Accordingly, we affirm the money laundering convictions.

C. Currency Reporting Instructions

22

Although materiality is an element under 26 U.S.C. §§ 7206(1) & (2), the trial court did not submit the issue to the jury. Knapp argues that under Gaudin, it was required to do so. This court recently decided whether the question of materiality belongs to the jury under 26 U.S.C. § 7206(1). The answer is "yes." United States v. Uchimura, 107 F.3d 1321 (9th Cir.1997).

23

In sum, Uchimura held that "the Supreme Court's reasoning [in Gaudin ] applies with equal potency to every crime of which materiality is an element." Id. at 1322. The court found that materiality under 26 U.S.C. § 7206(1) is an essential element for the jury to determine because it is fact-dependent:

24

Under most circumstances, this Court's pre-Gaudin statement that "any failure to report income is material" is one with which most juries would agree, since any failure to report income usually affects a determination of whether tax is owed.... But just because a jury usually would agree with such a statement does not mean that a jury must agree with it, as a matter of law. Even if any failure to report income is material in most circumstances, it is not necessarily material in all circumstances, since the materiality of an underreporting of income necessarily depends on the facts of each case.

25

Id. at 1324 (citation omitted). The decision effectively overrules United States v. Flake, 746 F.2d 535 (9th Cir.1984), cert. denied, 469 U.S. 1225, 105 S. Ct. 1220, 84 L. Ed. 2d 360 (1985), which held that materiality was a question of law, rather than a question of fact, under 26 U.S.C. § 7206(1). Uchimura, at 1324-25.2

26

Accordingly, the district court's instruction removing the element of materiality from the jury's consideration in the filing false currency report charge was erroneous.

III. Reversible Error

27

Once this court finds that an instruction was erroneous, we must determine whether that error requires reversal. United States v. Olano, 507 U.S. 725, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993). We conclude that it does not. Johnson v. United States, --- U.S. ----, 117 S. Ct. 1544, 137 L. Ed. 2d 718 (1997). In Johnson, the Supreme Court found that failure to submit the materiality issue to the jury where evidence of materiality was "overwhelming" and effectively uncontroverted was not plain error and did not warrant reversal. --- U.S. at ----, 117 S. Ct. at 1547-48. To warrant reversal in a case where a Gaudin-type error is made, the error must "seriously affect[s] the fairness, integrity or public reputation of judicial proceedings." --- U.S. at ----, 117 S. Ct. at 1550 (quoting Olano, 507 U.S. at 736, 113 S.Ct. at 1779).

28

Here, we find that the evidence of materiality in Knapp's failure to report properly several transactions in excess of $10,000 was overwhelming, and thereby precludes reversal. Because the record demonstrates that the error was not prejudicial and failed to seriously affect the fairness or integrity of the proceedings, we affirm the currency reporting conviction.

IV. Conclusion

29

We are reinstating our prior disposition as to all other issues. Accordingly, this case is AFFIRMED.

*

Honorable Samuel P. King, Senior United States District Judge for the District of Hawaii, sitting by designation

1

In light of the Supreme Court's general remand in light of Gaudin, we review all counts here

2

Our prior decision declined to expand the Ninth Circuit's Gaudin holding to § 7206 because at the time, Flake was well-established in this circuit and directly on point